For example, the European Economic Community began as a free-trade association. Then it was driven well beyond mere economic affiliation to become a complex, undemocratic, political combination whose promised benefits have evaporated. Its occupants now find themselves shackled together in a prison-house of mutual acrimony and mistrust.

The seeds of destruction were planted at Maastricht some 20 years ago

The seeds of destruction were planted at Maastricht some 20 years ago with a set of utterly unworkable “convergence criteria” for eurozone entry: basically, low inflation, government debt and interest rates. What a dream. The haughty but deluded founders discovered soon enough that strict adherence to their own entry conditions would result in their esteemed institution having no members!

So they fiddled it. Switzerland is the only country that could have ticked all the boxes, but chose to stay out. None of the current eurozone members actually met the hallowed Maastricht criteria when they joined. In the case of Greece, sustained over-borrowing, incorrigible tax evasion, corruption and public sector largesse eventually bankrupted it. Rampant profligacy had masqueraded as economic rectitude in the fraudulently manipulated figures supporting its entry in 2001.

Was Greece expelled? Of course not. The geniuses who put this unstable contraption together forgot to make any such provision. But the real reason is that they were all there under false pretences. Greece may be an extreme case, but what of France and Germany, whose leaders designed the whole enterprise?

One entry criterion requires that the annual government deficit must not exceed 3% of GDP. France, Belgium and Italy got in by including assets of state-company pension funds in current revenues, while ignoring future additional pension liabilities.
Here’s another rule: gross national debt must not exceed 60% of GDP. This should have classified Germany, Belgium, Italy and Austria as unfit for monetary union membership.

But economic convergence criteria were subordinated to the political steamroller. The protagonists simply ignored any rule that was a problem for them, rendering themselves morally impotent when the real wasters subsequently applied to join.

Imagine auditing it

How would you approach the task of independently auditing this impenetrable financial fog? Or applying some basic going concern tests to a country that is forced to pay more than 25% on any new issue of 10-year bonds, because on any default scale it is already well and truly bust?

You could, of course, demonstrate that Greece, Portugal and Italy are safe havens for your investments by adopting Lehman-style accounting rules. After all, these would allow you to ignore the existence of liabilities if you treat them as “sales”; or if you can sweet-talk creditors into deferring a settlement that they know they can’t have anyway. Enron; Lehman; Northern Rock; Greece. Their accounts all suffered from, well, compliance!

Under EC directives the accounts of banks must be true and fair, and capital maintenance (creditor protection) is implicit. Yet Brussels experts still wriggle with this notion because the banks’ balance sheets will always suffer from structural overstatement if they do not provide for expected losses.

But if their ability to assess the financial probity of their members is anything to go by, you would hardly expect the EU to adopt accounting for truth and fairness.